Actionable trade ideas for stock market investors and traders seeking alpha by overlaying their portfolios with options, other derivatives, ETFs, and disciplined and applied Game Theory for hedge fund managers and other active fund managers worldwide. Ryan Renicker, CFA

1. Newedge U.S. Listed Options Sales
Market Commentary June 16, 2009
Ryan Nolan Renicker, CFA
646-557-7999 Volatility ALERT
John Martin
646-557-7724 Intel Risk Expectations Historically Low
Remarkably, investors are pricing in long-term risk expectations (implied volatility) for Intel (INTC)
virtually equal to that of the Semiconductor HOLDRs Trust (SMH).
In fact, the spread of INTC 1-year implied volatility minus SMH 1-year implied volatility is
VIRTUALLY ZERO.
This is a very rare occurrence: the volatility of an exchange traded fund (ETF) – analogous to an
index – is almost always lower than that of its constituent securities because an ETF diversifies
away a large proportion of company-specific risks (particularly in a relatively low correlation
market environment).
Since INTC is only 1 of 18 stocks included in the SMH and accounts for less than a quarter of the
fund’s total weighting, we believe the market is mispricing the implied volatility of INTC relative
to that of the SMH and that this historically low spread will likely revert to more typical levels
(about 5 vol. points) during the next few months.
Directional Accounts: express views by selling long-dated SMH options and/or buying long-
dated INTC options.
Volatility Accounts: set up a relative-value volatility trade by going long INTC vega and short
SMH vega.
Please call for details.
Figure 1: INTC Leap – SMH Leap Implied Vol. Spread (Last 12 Months)
Source: Bloomberg.